American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Journal Article Front Matter i iv Front Matter includes photograph of Robert E. Hall as part of a series of photographs of past presidents of the Association. http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.i 10.1257/aer.101.2.i American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles The Long Slump Robert E.HallStanford U 431 69 In a market-clearing economy, declines in demand from one sector do not cause large declines in aggregate output because other sectors expand. The key price mediating the response is the interest rate. A decline in the rate stimulates all categories of spending. But in a low-inflation economy, the room for a decline in the rate is small, because of the notorious lower limit of zero on the nominal interest rate. In the Great Depression, substantial deflation caused the real interest rate to reach high levels. In the Great Slump that began at the end of 2007, low inflation resulted in an only slightly negative real rate when full employment called for a much lower real rate because of declines in demand. Fortunately, the inflation rate hardly responded to conditions in product and labor markets, else deflation might have occurred, with an even higher real interest rate. I concentrate on three closely related sources of declines in demand: the buildup of excess stocks of housing and consumer durables, the corresponding expansion of consumer debt that financed the buildup, and financial frictions that resulted from the decline in real-estate prices. (JEL E23, E24, E31, E32, E65) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.431 10.1257/aer.101.2.431 http://www.aeaweb.org/aer/data/april2011/00_presidential_data.zip http://www.aeaweb.org/aer/data/april2011/00_presidential_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Reference Points and Effort Provision JohannesAbelerU Nottingham ArminFalkU Bonn LorenzGoetteU Lausanne DavidHuffmanSwarthmore College 470 92 A key open question for theories of reference-dependent preferences is: what determines the reference point? One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based, reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low. (JEL D12, D84, J22) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.470 10.1257/aer.101.2.470 http://www.aeaweb.org/aer/data/april2011/20081240_data.zip http://www.aeaweb.org/aer/data/april2011/20081240_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Contracts as Reference Points--Experimental Evidence ErnstFehrInstitute for Empirical Research in Economics, U Zurich OliverHartHarvard U ChristianZehnderU Lausanne 493 525 Hart and John Moore (2008) introduce new behavioral assumptions that can explain long-term contracts and the employment relation. We examine experimentally their idea that contracts serve as reference points. The evidence confirms the prediction that there is a trade-off between rigidity and flexibility. Flexible contracts--which would dominate rigid contracts under standard assumptions--cause significant shading in ex post performance, while under rigid contracts much less shading occurs. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract. (JEL D44, D86, J41) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.493 10.1257/aer.101.2.493 http://www.aeaweb.org/aer/data/april2011/20081227_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition UweDulleckQueensland U Technology RudolfKerschbamerU Innsbruck MatthiasSutterU Innsbruck and U Gothenburg 526 55 Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market breakdown. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that liability or verifiability yield efficiency, we find that liability has a crucial, but verifiability at best a minor, effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated. (JEL D12, D82) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.526 10.1257/aer.101.2.526 http://www.aeaweb.org/aer/data/april2011/20090648_data.zip http://www.aeaweb.org/aer/data/april2011/20090648_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Performance Pay and Multidimensional Sorting: Productivity, Preferences, and Gender ThomasDohmenMaastricht U ArminFalkU Bonn 556 90 This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. Subjects face the choice between a fixed and a variable payment scheme. Depending on the treatment, the variable payment is a piece rate, a tournament, or a revenue-sharing scheme. We find that output is higher in the variable-payment schemes compared to the fixed-payment scheme. This difference is largely driven by productivity sorting. In addition, different incentive schemes systematically attract individuals with different attitudes, such as willingness to take risks and relative self-assessment as well as gender, which underlines the importance of multidimensional sorting. (JEL C91, D81, D82, J16, J31) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.556 10.1257/aer.101.2.556 http://www.aeaweb.org/aer/data/april2011/20071504_data.zip http://www.aeaweb.org/aer/data/april2011/20071504_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Are Risk Preferences Stable across Contexts? Evidence from Insurance Data LevonBarseghyanCornell U JeffreyPrinceIN U Joshua C.TeitelbaumGeorgetown U Law Center 591 631 Using a unique dataset, we test whether households' deductible choices in auto and home insurance reflect stable risk preferences. Our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household-coverage specific Poisson processes. We find that the hypothesis of stable risk preferences is rejected by the data. Our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices. Our results are robust to several alternative modeling assumptions. (JEL D11, D83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.591 10.1257/aer.101.2.591 http://www.aeaweb.org/aer/data/april2011/20081150_data.zip http://www.aeaweb.org/aer/data/april2011/20081150_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Collaborating AlessandroBonattiMIT JohannesHornerYale U 632 63 This paper examines moral hazard in teams over time. Agents are collectively engaged in a project whose duration and outcome are uncertain, and their individual efforts are unobserved. Free-riding leads not only to a reduction in effort, but also to procrastination. Collaboration among agents dwindles over time, but does not cease as long as the project has not succeeded. In addition, the delay until the project succeeds, if it ever does, increases with the number of agents. We show why deadlines, but not necessarily better monitoring, help to mitigate moral hazard. (JEL D81, D82, D83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.632 10.1257/aer.101.2.632 http://www.aeaweb.org/aer/data/april2011/20090559_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Heterogeneity in Risky Choice Behavior in a Broad Population Hans-Martinvon GaudeckerU Mannheim Arthurvan SoestTilburg U ErikWengstromLund U and U Copenhagen 664 94 We analyze risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: utility curvature, loss aversion, preferences toward the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behavior. The structural parameters are significantly associated with socioeconomic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data. (JEL D12, D81) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.664 10.1257/aer.101.2.664 http://www.aeaweb.org/aer/data/april2011/20090209_data.zip http://www.aeaweb.org/aer/data/april2011/20090209_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation MohammedAbdellaouiHEC Paris and CNRS-GREGHEC, Jouy-en-Josas AurelienBaillonErasmus U Rotterdam LaetitiaPlacidoHEC Paris and CNRS-GREGHEC, Jouy-en-Josas Peter P.WakkerErasmus U Rotterdam 695 723 We often deal with uncertain events for which no probabilities are known. Several normative models have been proposed. Descriptive studies have usually been qualitative, or they estimated ambiguity aversion through one single number. This paper introduces the source method, a tractable method for quantitatively analyzing uncertainty empirically. The theoretical key is the distinction between different sources of uncertainty, within which subjective (choice-based) probabilities can still be defined. Source functions convert those subjective probabilities into willingness to bet. We apply our method in an experiment, where we do not commit to particular ambiguity attitudes but let the data speak. (JEL D81) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.695 10.1257/aer.101.2.695 http://www.aeaweb.org/aer/data/april2011/20080704_data.zip http://www.aeaweb.org/aer/data/april2011/20080704_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Procedural Analysis of Choice Rules with Applications to Bounded Rationality YuvalSalantNorthwestern U 724 48 I study how limited abilities to process information affect choice behavior. I model the decision-making process by an automaton, and measure the complexity of a specific choice rule by the minimal number of states an automaton implementing the rule uses to process information. I establish that any choice rule that is less complicated than utility maximization displays framing effects. I then prove that choice rules that result from an optimal trade-off between maximizing utility and minimizing complexity are history-dependent satisficing procedures that display primacy and recency effects. (JEL D01, D03, D11, D83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.724 10.1257/aer.101.2.724 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles The Bidder's Curse UlrikeMalmendierU CA, Berkeley Young HanLeeVirtu Financial LLC, New York, NY 749 87 We employ a novel approach to identify overbidding in auctions. We compare online auction prices to fixed prices for the same item on the same webpage. In detailed data on auctions of a board game, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent overbidding). A small fraction of overbidders, 17 percent of bidders, suffices to generate the large fraction of auctions with overbidding. We show that the observed behavior is inconsistent with rational behavior, even allowing for uncertainty about prices and switching costs, since the expected auction price also exceeds the fixed price. Limited attention best explains our results. (JEL D12, D44) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.749 10.1257/aer.101.2.749 http://www.aeaweb.org/aer/data/april2011/20080534_data.zip http://www.aeaweb.org/aer/data/april2011/20080534_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Falsifiability WojciechOlszewskiNorthwestern U AlvaroSandroniNorthwestern U and U PA 788 818 We examine Popper's falsifiability within an economic model in which a tester hires a potential expert to produce a theory. Payments are contingent on the performance of the theory vis-a-vis data. We show that if experts are strategic, falsifiability has no power to distinguish scientific theories from worthless theories. The failure of falsification in screening informed and uninformed experts motivates questions on the broader concepts of refutation and verification. We demonstrate an asymmetry between the two concepts. Like falsification, verification contracts have no power to distinguish between informed and uninformed experts, but some refutation contracts are capable of screening experts. (JEL B41) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.788 10.1257/aer.101.2.788 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Articles Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model SteffenHuckU College London and ELSE Andrew J.SeltzerRoyal Holloway, U London BrianWallaceU College London 819 43 This paper provides the first experimental test of Edward Lazear's (1979) model of deferred compensation. We examine the relationship between firms' wage offers and workers' effort supply in a multi-period environment. If firms can ex ante commit to a wage schedule with deferred compensation, workers should respond by supplying sufficient effort to avoid dismissal. We contrast this full-commitment case to controls with no commitment and computer-generated wages in order to examine the roles of monetary incentives, social preferences, and reciprocity. Finally, we examine a setup without formal commitment, but where firms can build a reputation for paying deferred wages. (JEL D86, J22, J31, J33, J41) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.819 10.1257/aer.101.2.819 http://www.aeaweb.org/aer/data/april2011/20090573_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Sales and Monetary Policy BernardoGuimaraesLondon School of Economics and Political Science Kevin D.SheedyLondon School of Economics and Political Science 844 76 A striking fact about pricing is the prevalence of "sales": large temporary price cuts followed by prices returning to exactly their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers with different price sensitivities. Even if firms can adjust sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility seen in individual prices due to sales does not translate into flexibility of the aggregate price level. (JEL E13, E31, E52, L11, L25, L81, M31) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.844 10.1257/aer.101.2.844 http://www.aeaweb.org/aer/data/april2011/20080870_data.zip http://www.aeaweb.org/aer/data/april2011/20080870_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers The Cyclical Behavior of Debt and Equity Finance FranciscoCovasFederal Reserve Board Wouter J.Den HaanU Amsterdam 877 99 Debt and equity issuance are procyclical for most size-sorted firm categories of listed US firms and the procyclicality of equity issuance decreases monotonically with firm size. At the aggregate level, however, the results for equity issuance are not conclusive due to different behavior of the largest firms, especially those in the top one percent. During a deterioration in economic conditions, firms limit the impact of the reduction in external financing on investment by shedding financial assets. This is true for a worsening in aggregate as well as firm-specific conditions. (JEL E32, G32, L11, L25) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.877 10.1257/aer.101.2.877 http://www.aeaweb.org/aer/data/april2011/20070104_data.zip http://www.aeaweb.org/aer/data/april2011/20070104_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Search Dynamics in Consumer Choice under Time Pressure: An Eye-Tracking Study ElenaReutskajaIESE Business School, Barcelona RosemarieNagelU Pompeu Fabra and ICREA Colin F.CamererCA Institute of Technology AntonioRangelCA Institute of Technology 900 926 We study decisions that involve choosing between different numbers of options under time pressure using eye-tracking to monitor the search process of the subjects. We find that subjects are quite adept at optimizing within the set of items that they see, that the initial search process is random in value, that subjects use a stopping rule to terminate the search process that combines features of optimal search and satisficing, and that subjects search more often in certain focal regions of the display, which leads to choice biases. (JEL C91, D12, M31) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.900 10.1257/aer.101.2.900 http://www.aeaweb.org/aer/data/april2011/20080768_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Coordination in the Presence of Asset Markets ShimonKoganU TX Anthony M.KwasnicaPA State U Roberto A.WeberCarnegie Mellon U 927 47 We explore the relationship between outcomes in a coordination game and a pre-play asset market where asset values are determined by outcomes in the subsequent coordination game. Across two experiments, we vary the payoffs from the market relative to the game, the degree of interdependence in the game, and whether traders' asset payoffs are dependent on outcomes in their own or another game. Markets lead to significantly lower efficiency across treatments, even when they produce no distortion of incentives in the game. Market prices forecast game outcomes. Our experiments shed light on how financial markets may influence affiliated economic outcomes. (JEL C91, D83, G13, G14) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.927 10.1257/aer.101.2.927 http://www.aeaweb.org/aer/data/april2011/20080807_data.zip http://www.aeaweb.org/aer/data/april2011/20080807_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Real-Time Search in the Laboratory and the Market MetaBrownFederal Reserve Bank of New York Christopher J.FlinnNYU and U Turin AndrewSchotterNYU 948 74 While widely accepted labor market search models imply a constant reservation wage policy, empirical evidence strongly suggests that reservation wages decline in search duration. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1. Searchers respond to the stock of accruing search costs. 2. Searchers experience non-stationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically. (JEL C91, D83, J64) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.948 10.1257/aer.101.2.948 http://www.aeaweb.org/aer/data/april2011/20071169_data.zip http://www.aeaweb.org/aer/data/april2011/20071169_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Checkmate: Exploring Backward Induction among Chess Players Steven D.LevittU Chicago John A.ListU Chicago Sally E.SadoffBecker Center on Chicago Price Theory, U Chicago 975 90 Although backward induction is a cornerstone of game theory, most laboratory experiments have found that agents are not able to successfully backward induct. We analyze the play of world-class chess players in the centipede game, which is ill-suited for testing backward induction, and in pure backward induction games--Race to 100 games. We find that chess players almost never play the backward induction equilibrium in the centipede game, but many properly backward induct in the Race to 100 games. We find no systematic within-subject relationship between choices in the centipede game and performance in pure backward induction games. (JEL C73) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.975 10.1257/aer.101.2.975 http://www.aeaweb.org/aer/data/april2011/20090032_data.zip http://www.aeaweb.org/aer/data/april2011/20090032_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers The Willingness to Pay—Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations: Comment AndreaIsoniU Warwick GrahamLoomesU Warwick RobertSugdenU East Anglia 991 1011 Plott and Zeiler (2005) report that the willingness-to-pay/willingness-to-accept disparity is absent for mugs in a particular experimental setting, designed to neutralize misconceptions about the procedures used to elicit valuations. This result has received sustained attention in the literature. However, other data from that same study, not published in that paper, exhibit a significant and persistent disparity when the same experimental procedures are applied to lotteries. We report new data confirming both results, thereby suggesting that the presence or absence of a disparity may be a more complex issue than some may have supposed. (JEL C91, D12, D81, D83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.991 10.1257/aer.101.2.991 http://www.aeaweb.org/aer/data/april2011/20080201_data.zip http://www.aeaweb.org/aer/data/april2011/20080201_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers The Willingness to Pay--Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations: Reply Charles R.PlottCA Institute of Technology KathrynZeilerGeorgetown U Law Center 1012 28 Isoni, Loomes, and Sugden (2011) assert that Plott and Zeiler (2005) reported inaccurate results. Placing ILS's selective quotes into context demonstrates otherwise. Additionally, examining the data closely yields three conclusions. First, all mug data reject endowment effect theory. Second, lottery gaps are associated with unstable attitudes toward uncertainty, a finding consistent with PZ's (2005) lottery data description, explicit warnings about procedure limitations and the data supplement, which reports the lottery data and cautions. Third, lottery outcome beliefs are influenced by whether WTP or WTA is reported, suggesting that changing beliefs, as opposed to the shape of preferences, produce lottery gaps. (JEL C91) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.1012 10.1257/aer.101.2.1012 http://www.aeaweb.org/aer/data/april2011/20100063_data.zip http://www.aeaweb.org/aer/data/april2011/20100063_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Stationary Concepts for Experimental 2 X 2 Games: Comment ChristophBrunnerAlfred Weber Institute, U Heidelberg Colin F.CamererCA Institute of Technology Jacob K.GoereeInstitute for Empirical Research in Economics, U Zurich 1029 40 Reinhard Selten and Thorsten Chmura (2008) recently reported laboratory results for completely mixed 2 X 2 games used to compare Nash equilibrium with four other stationary concepts: quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium, and impulse balance equilibrium. We reanalyze their data, correct some errors, and find that Nash clearly fits worst while the four other concepts perform about equally well. We also report new analysis of other previous experiments that illustrate the importance of the loss aversion hardwired into impulse balance equilibrium: when the other non-Nash concepts are augmented with loss aversion, they outperform impulse balance equilibrium. http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.1029 10.1257/aer.101.2.1029 http://www.aeaweb.org/aer/data/april2011/20090170_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 2 April 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=2 Shorter Papers Stationary Concepts for Experimental 2 X 2 Games: Reply ReinhardSeltenBonnEconLab, U Bonn ThorstenChmuraU Munich and BonnEconLab, U Bonn Sebastian J.GoergMax Planck Institute for Research on Collective Goods, Bonn and BonnEconLab, U Bonn 1041 44 This is a reply to "Stationary Concepts for Experimental 2 X 2 Games: Comment" by Brunner, Camerer, and Goeree which corrects some computational errors in Selten and Chmura (2008) and extends the comparison of five stationary concepts to data from previous experimental studies. We critically discuss their new findings and relate them to the data of Selten and Chmura (2008). We conclude that the parametric concepts of action-sampling equilibrium and payoff-sampling equilibrium perform better than quantal response equilibrium, and that the non-parametric concept of impulse-balance equilibrium performs at least as well as quantal response equilibrium. (JEL C70) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.1041 10.1257/aer.101.2.1041 http://www.aeaweb.org/aer/data/april2011/20091323_app.pdf